Shares of Tronox (NYSE:TROX) jumped over 20% today after the company announced it had filed a joint motion with the U.S. Federal Trade Commission to delay the appeal schedule regarding the review of its proposed acquisition of Cristal. The move suggests the titanium dioxide manufacturer and the FTC are making progress toward a compromise over the acquisition of the Saudi-based chemicals producer, which has been under intense regulatory scrutiny for two years.
Wall Street is cheering the news that the stalemate might finally be coming to an end, although it’s been a painful 24 months. The regulatory hang-up has resulted in shares of Tronox falling 47% since the acquisition of Cristal was first announced in February 2017. As of 11:15 a.m. EST, the stock had settled to a 17.3% gain.
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The FTC sued Tronox in the second half of 2017 to stop the proposed acquisition of Cristal in its tracks. Regulators argued that the acquisition would concentrate too much market power into the hands of too few companies. That point was pretty difficult to disprove considering Chemours, Venator Materials, and Kronos Worldwide own about 45% of global titanium dioxide production capacity. Add Tronox and Cristal to that list and you’d be looking at the entire North American market.
But regulators didn’t stop there. The FTC also argued in its lawsuit that the North American titanium dioxide industry operated as an oligopoly, meaning producers routinely coordinated output to affect prices. That was a shot across the bow of major producers and weighed heavily on all titanium dioxide stocks in 2018, as it created the possibility for further legal action down the road.
Tronox has tied itself into a pretzel trying to appease the FTC and stop getting dirty looks from its peers for creating this mess. It offered to divest all North American production assets of Cristal, first to Venator Materials (an existing market player) and then to INEOS (a company with no presence in titanium dioxide whatsoever). Regulators didn’t budge — until today.
Today’s announcement suggests the FTC may be opening up to the latest pitch. Allowing an established company such as INEOS to enter the titanium dioxide market would dilute the concentration of power. Tronox would still get the international assets of Cristal to boost its growth strategy. And peers wouldn’t suffer from the risk of future legal action. There’s still a long way to go before the acquisition can be approved — and titanium dioxide stocks reclaim lost ground — but this is a sign progress is finally being made.